So what is the best process for setting up a large community site using WordPress with git version control? Multiple people submitting changes etc, testing area and easy way to update the live site. How would you do it?

Have only one/two people actually manage the master push to the staging server, this allows them to review changes and have a certain amount of control over what goes on, also it is way less confusing.

This is strictly for code changes, content based changes are way more complex and would need several other "layers" to ensure database compatibility/sync.

Sending from staging to live is a topic in of itself, you can use automated tools, ftp, even DVCS itself, it really depends on your environment.

An alternative is to use a PHP based PAAS servive ( there are now several), they can automate much of this process, I recently reviewed them all and each one has a different feature set and quirks ( most of these services are really new).

For example here is a really boring video I made on syncing a live site through github ( using Engine Yard), the downside is that this service has no actual file server and in the long run made it very difficult to work with, but some PAAS services do support this.(I think they are adding it soon as well)
http://www.youtube.com/watch?v=8ZEiFi4thDI

What I don't understand is how git interacts with your IDE. Say i'm developing on Dreamweaver, and I switch branches, my IDE isn't going to reflect that so how do I get the two aligned? Plugins? = more complicated than simple FTP sync ...
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AlxVallejoAug 21 '12 at 18:32

@AlxVallejo , it's interacts with your files. When you checkout a version of your project. Your all files changed with that version's file. So when you refresh your files (just close and open again) in Dreamviewer, you'll see new content of files.
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ErayAug 25 '12 at 16:06